The Green Sheet Online Edition

June 24, 2013 • Issue 13:06:02

D.C. taxis at payments crossroads

A
controversy recently erupted over the future of electronic payments for taxi rides in Washington D.C. The dispute concerns the District of Columbia Taxicab Commission's (DCTC's) recent decision that mandates taxi-reservation mobile app developers integrate their services with the in-taxi POS systems currently slated for installation in D.C. taxis.

At stake is what entity or entities will control the flow of electronic payments in the taxis and whether consumers will be able to pay for taxi rides via mobile apps on smartphones - issues other communities grapple with, as well.

In May 2013, the DCTC issued final requirements for how the digital reservation app developers' systems must operate with a new modern taximeter system (MTS) championed by the DCTC for installation in D.C. taxis.

Among the requirements is that payments initiated by the apps run through the MTS payment network. But at least two of the app developers - Intelligent Apps GmbH (dba mytaxi) and Uber Technologies Inc. - operate systems that presently bypass any in-taxi payment system.

The DCTC regulations thus prohibit taxi payments from being processed outside of the MTS; the app developers said this restriction stifles innovation, since their mobile apps allow consumers to hail taxis and set up fare payments before making trips in taxis, with those payments processed by other third-party payment companies.

E-hailer complaints

Lina Wüller, spokeswoman for Hamburg, Germany-based mytaxi, said the mytaxi e-hailing system operates via dual apps - a consumer facing app and another for taxi drivers. Wüller explained that mytaxi users can set up payments via PayPal Inc. accounts or, alternatively, pay with Visa Inc.- and MasterCard Worldwide-branded cards processed through international online payment provider Wirecard AG. According to mytaxi, the DCTC requirements would eliminate mytaxi customers from using either payment method.

"What they prohibit is the manual entry of the fare information in a mobile application, and this is the only way that our system works," Wüller said.

DCTC Public Information Officer Neville Waters said the manual entry prohibition is designed to prevent identity theft and fraud perpetrated by D.C. taxi drivers. "You'd like to believe that 100 percent of your drivers are honest," he said. "But you're giving them a potential loophole which potentially unscrupulous people could have access to people's credit card information.

"They could be entering false information. [The restriction is] a form of consumer protection."

But Wüller doesn't buy the argument. She said drivers using mytaxi never see passengers' card information on their app; no payment information is ever saved in the app, so drivers have no access to billing data.

She noted that it is only after taxi rides have been completed that drivers input fare information into their app and send a push notification to the passengers' app, at which point passengers confirm final fares and receipts are emailed to passengers' accounts. At no time during this process is sensitive passenger information available to drivers, according to Wüller.

"And this is why the argument of the DCTC for us is not very clear," she said.

Uber moves in

Uber entered the D.C. taxi market in December 2011 and is one of about a dozen e-hailing providers attempting to gain traction in the nation's capital. Uber, which offers a service similar to mytaxi, stated in a March 2013 letter to the DCTC that it does not process credit card payments, but contracts out that function to an unnamed third-party processor.

In the letter, Uber takes issue with the commission's insistence that payments be processed via the in-taxi MTS. "The result of such a structure would be the prohibition of the use of other payment arrangements, such as Uber's seamless payment arrangement," wrote Uber DC General Manager Rachel Holt.

Uber went further in a white paper published in April. "The incumbent taxi industry, widely reported to be corrupt, anti-competitive, and generally acting against the interests of the public and its struggling drivers, has launched a full frontal campaign to slow and/or shut down Uber," the paper said.

A May 2013 post at travel industry blog site BoardingArea sided with Uber, stating the DCTC "has long been in the pocket of incumbent taxi interests." In February 2011, four men were sentenced to prison for their roles in what reports at the time characterized as a wide-ranging conspiracy to bribe D.C. officials in order to influence legislation to protect the district's taxi companies from competition.

The D.C. Professional TaxiCab Drivers Association opposes the installation of the MTS, calling the system a "dinosaur" on its website. The association denounced the DCTC's plan, supported by D.C. Mayor Vincent C. Gray and D.C. Councilmember Mary M. Cheh, D-Ward 3, as taking business away from individual taxi drivers in favor of corporate interests.

In a June 4, 2013, letter to the DCTC, Cheh, who chairs the council's Committee on Transportation and the Environment, voiced concerns that the commission's plan would discourage e-hailing companies from operating in D.C.

She called the DCTC's smartphone application approval process burdensome and said third-party digital dispatch services should not have to transmit data to the commission.

Hail, hail

The battle between traditional and innovative taxi payments is not limited to D.C., as New York City can be considered ground zero for the conflict. Wüller said mytaxi, which operates in many cities across Europe, chose to enter the U.S. market in D.C. in October 2012 because New York City did not allow for e-hailing at the time.

San Francisco-based Uber decided to test the waters anyway and entered the N.Y. market in September 2012, and immediately met resistance. The city's Taxi & Limousine Commission initially banned Uber from operating, then voted in January 2013 to allow a one-year pilot program to test the app-based service.

Then in March, a group of New York City livery companies sued Uber. In that metropolis, yellow taxis are allowed to pick up people who hail cabs from the street; limousines and livery cars can respond only to prearranged calls.

Since Uber's service involves use of phones, the livery companies argued that Uber was invading their prearranged-call territory. Others, however, view Uber's service as a technologically advanced form of hailing a cab.

By late April, Uber was making inroads in the Big Apple. But shortly thereafter, the livery companies had a temporary restraining order slapped on Uber. However, that didn't stop another mobile taxi reservation startup, Hailo, from joining the pilot in May.

Then, on June 6, the New York State Court of Appeals unanimously approved the e-hailing practice and the pilot officially went forward once again, with Mayor Michael Bloomberg hailing the victory.

"This decision will allow our e-hail program to move forward, and give New Yorkers another way to hail a cab," he said. "Some in the industry want to protect their business interests by blocking the use of new technology - but innovation is good for customers, and we will continue to encourage it."

In May, Uber added Google Wallet as a payment option inside the app. But in New York, Uber is restricted to providing the e-hailing functionality only, so passengers must pay fares the old fashioned way by presenting cards and cash.

VeriFone or bust

POS manufacturers VeriFone Inc. and Creative Mobile Technologies LLC are the only providers of in-taxi payment systems for New York City taxis, which number some 13,000. VeriFone Transportation Systems, originally a joint venture between VeriFone and TaxiTronics, entered the New York market in July 2007.

The VTS in-taxi POS system involves a passenger facing terminal and a display and dispatch system for the drivers. The terminal features a touch screen monitor that allows passengers to review fares, add tips and pay by swiping cards through a reader.

The system is also near field communication-enabled for tap-and-go contactless payments. The screen displays digital advertising as well, and even offers passengers the ability to purchase lottery tickets.

Since 2007, VeriFone has rolled out its VTS system in, among other places, Boston, Atlanta, Philadelphia and Las Vegas. In September 2007, New York and Philly cabbies staged a two-day strike, complaining that the new systems were noisy and distracting, and that drivers were assessed transaction fees of up to 5 percent per fare. Since then, cabbies have apparently voiced no major concerns about the systems.

But for VeriFone, nothing ever seems to be easy. In December 2012, CMT sued VeriFone for $250 million. The suit alleges that VeriFone - which acquired CMT partner VMS (formerly Clear Channel Taxi Media LLC) in 2009 - breached a prior agreement VMS had with CMT. The agreement apparently included a pact that VMS would offer CMT first refusal on business opportunities that instead went to CMT's competitor, VeriFone.

In July 2012, VeriFone won a five-year contract with the DCTC to be the exclusive provider of the MTS for D.C. taxis. VeriFone valued the deal at somewhere between $35 million to $45 million when advertising revenue was factored in.

But in a June 1, 2013, report published online, the Mobile Commerce Press said the DCTC is trying to get out of the deal. The article, "Turbulence rocks mobile commerce partnership," noted that VeriFone now claims the DCTC owes the POS provider as much as $18.5 million, with most of that sum coming from contract cancellation fees. VeriFone declined The Green Sheet's request for comment.

Waters also did not respond to The Green Sheet's query about the DCTC's apparent rift with VeriFone, but he did address one of the commission's reasons behind wanting all payments to be funneled through the in-taxi MTS, and it involves big data. Via the MTS, the DCTC will have access to a trove of trip data it can use to tailor and improve transportation services, according to Waters.

"We've never had that sort of technology to be able to look at travel patterns, to help set policy, to make service decisions," he said. "It will be extremely valuable after several months of collecting this data and you're seeing, 'Wow, here are the travel patterns.

"We need to look at providing transportation here, there.' ... There's so much information I think that can be gleaned that we've never been able to have access to. So we're very excited about that."

Another reason is fees, as passengers will pay a 25-cent surcharge when paying for taxi rides with plastic, Waters added. "Our funding comes from user fees," he said.

Wüller noted that mytaxi does not charge user fees. She added that drivers using mytaxi pay "a really, really small percentage. This is not comparable to the money they are supposed to pay to the DCTC for noncash payments."

Stuck in reverse?

Uber has been a vocal critic of the taxi commission's position on data collection. In a May 17 blog post, Uber said the DCTC would require the e-hailing app developer to "hand over massive amounts of data on your rides, and require Uber to jump over regulatory hurdles every year just to exist."

Wüller seconded that opinion. "Honestly, tell me one person in Washington that wants to give the data to the DCTC?" she said. Wüller even questioned the need for a new MTS.

If the better way to pay for taxi rides is by smartphone, without customers having to carry credit cards or cash, it makes no sense to hinder that innovation, she said. "With the new system from the DCTC, credit cards will become essential again because that is the only way how you can do your transaction in the taxi," she added. "To us, it is kind of a step back."

Waters said the DCTC is letting marketplace competition play out, with the app developers that achieve integration with the in-taxi MTS systems having the best chance at success.

While he believes there will be some bumps along the way, he is optimistic about the future. "To think about where we might be in six months is a pretty cool thing," he said.

The DCTC has set a deadline of Aug. 31, 2013, when it expects all of D.C.'s 7,300 taxis to be equipped with the MTS and when app developers like mytaxi must be integrated into the new system. But no one apparently knows what that system will be. "They have not told us yet how this is going to work," Wüller said.

So the e-hailing community waits. Wüller said mytaxi will attempt to move forward once the commission reveals specifications on the MTS.

But if the DCTC's requirements force mytaxi to eliminate its payment functionality, it will be "a huge loss for our customers," she said.

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